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Market Segmentation

Market Segmentation Free Essay

Introduction

Market segmentation is an indispensable element of all successful marketing activities. Businesses cannot produce and/or sell products without identifying customer requirements and satisfy the diversity of their needs. The success of any business largely depends on bring satisfaction to customers. Understanding the user’s needs is crucial in delivering the features and functions of product in the market. Very few businesses can succeed by delivering a single offer to a wide range of diverse buyers. Most enterprises are drifting away from mass marketing and focusing on marketing segmentation after realizing the complexity of needs in the marketplace. The segmentation enables dividing market into smaller groups of customers with distinct characteristics, needs, and behaviors, which demand a broad range of products or marketing mixes. Thus, market segmentation helps companies divide large diversified markets into smaller uniform market segments, which can be targeted easier and in a more effective fashion. As buyer needs continue to expand, the necessity to know the customers and forming an effective segmentation is acquiring significance in the marketing world. The four dimensions of segmentation such as demographic, geographic, behavioral, and psychographic are largely used by mobile manufacturers to differentiate users in forecasting cellular service adoption. The current paper explores the different dimensions of segmentation commonly adopted by mobile manufacturers and its application in the effective market segmentation on the context of stakeholders in the mobile ecosystem. The study also provides an overview of the research on the state-of-the-art in segmenting the buyers according to their needs and wants. It also examines the interaction, which exists between segments by analyzing the relationship between each segment. The findings reflect that the market segmentation can be categorized with respect to usage behavior, characteristics, demands and needs.

Important Market Segments in the Mobile Domain

Market segmentation is a concept that involves producing artificial groups of buyers to help companies target and design their strategies. Hence, identifying the market segments and their characteristics highly depends on the dimensions and methods adopted to define them. A segmentation dimension is a set of characteristics or variables used to determine potential buyers to homogeneous groups leading to different segments produced. Usually, marketers segment the market by selecting variables from four dimensions of segmentation while designing products and marketing strategies. They are demographic, psychographic, geographic and behavioral segmentation. The table 1 below shows an example of variables on different dimensions of segmentation.

Table 1: Variables of four dimensions of segmentation

Variable of four dimensions of segmentation

Note. Companies create market segments by considering different variables of four dimensions of segmentation. Source: Jansen (2007)

Geographic Segmentation

Geographic segmentation segregates the market into various geographical variables such as regions, counties, states, nations, neighborhoods, or cities. The business can operate in few geographic areas or function in all but give attention to local variations. Marketers segment the markets taking into account the size of a town or a city, or by population criteria – rural, urban, or suburban. Mobile and high-tech companies resort to geographic segmentation that modifies their marketing mix, which is based on different requirements of buyers in a diverse geographical segments for fulfilling their needs. Such a typical segmentation aids companies in producing their products according to the needs of buyers on that location but also have to fulfill the norm and regulation of that specific region or location. Moreover, geographic segmentation demands that the buyers in one location or region should be homogenous. As a result, marketers cannot meet such condition in reality, as consumers in one region and district or area may possess different needs or attitude on specific product (Jansen, 2007).

Demographic Segmentation

In demographic segmentation, marketers classify people into groups by considering variables such as family size, age, gender, education, religion, income, race, family life cycle, nationality, social class, occupation, and generation. Demographic characteristics are the most popular dimensions for differentiating customer groups because buyer preferences, usage rates, and needs are often combined with demographic variables. Another reason is that they can be measured and often differ with consumer usage rates and needs. The cost and complexity of implementation are also relatively low. Although the target market is distinguished by using non-demographic variables, demographic characteristics are needed to define the market segment by measuring the market size and choosing the media channels that can reach the target audience in the most effective manner. When employed, demographic variables can give a productive dimension for customer-oriented market segmentation appropriately (Kotler, 2011).

Psychographic Segmentation

The prime objective of psychographic segmentation is to acquire a better understanding of the customers as a person by evaluating him/her on various psychological dimensions and also the lifestyle, things which benefit him/her, and opinion on a diversified variety of products and services. Since companies have realized that to motivate or attract a particular group of customers, it is essential to study the way they think and identify their attitudes and values, as well as which section of the society they belong to while considering traditional demographic segments. The changes in a buyer, occupation, family circumstances throughout life impact buying behavior. Thus, demographic and psychographic segmentation variables offer a better combination for identification of market segments. Behavioral variables such as usage rates can also be incorporated to support a psychographic segmentation. Psychographic segmentation divides users into four different groups according to personality, values, motivation and lifestyle variables. The segment consists of traditionalists, yuppies, and social concerned and career oriented people. These divisions differ in interests, activities, and attitudes and impact the services and products they utilize. The most widely practiced method to measure lifestyle and personality is by evaluating AIO (activities, interests, and opinions) rating statements. According to Falaki et al., (2009), the lifestyle construct involves Likert-type statements covering AIO categories such as:

  • Activities: Include behavior related to community entertainment, club membership, hobbies, social events, shopping, vacation, sports, and occupation.
  • Interests: Include level of achievement, family, fashion, community, food, job, home, recreation, and media.
  • Opinions: About business, economy, culture, future, politics, education, products, social issues, and personal growth.

The businesses also try to segment markets by personality criteria and they attempt to introduce brands the images of which “brand personalities” will appeal to users’ personalities they identify (Falaki et al., 2009).

Behavioral Segmentation

Behavioral segmentation divides groups by assessing the behavior, which mobile users exhibit in the market. The segments in this dimension include Hi-fliers, celebrities, company executives, middle and high-income families. Behavioral variables constitute an excellent segmentation tool because data collection is in the manner in which buyers actually represent their behavior in the marketplace. Hence, the information can enable companies to acquire a better understanding of the behavior of consumers. Behavioral segmentation depends on historical data to forecast what the user will possibly buy in the future. According to Kotler (2011), consumers can be identified by the conditions when they show a need to buy or to utilize a product or service. They also can be grouped according to the requirements and benefits sought. The approach to such market segmentation points out that businesses should offer users with their exact requirements and it should not be on the basis of mere product designing for them, but on the benefits and advantages that they can obtain from products that they buy (Kotler, 2011).

Mainstream Segments and Niche Segments of Mobile Industry

It is mandatory to carry out a secondary research to find out which segments are “mainstream” and which are “niche” segments. Thus, we first conduct a literature research on the current market situation of the mobile industry to find the type of segmentation they use. The sources selected to obtain the literature are from Science Direct database, Scopus, Springer link, TU Delft Institutional Repository and Google Scholar. From the literature research, it is possible to identify the type of dimension of segmentation i.e. mainstream or niche, which the researcher uses in segmenting the mobile market. In Table 2, the template provides different categories of customer traits and different market segments.

Table 2: The template provides diverse categories of customer traits and different market segments.

Dimensions of Segmentation Segment Core Attributes
Behavioral Segmentation Mainstream Segment High-profile personalities, famous celebrities, and industrialists, corporate executives. High and middle-income group, trend setters. Cell phone attributes: price, technological capabilities, information security, and entertainment
Psychographic Segmentation Niche Segment Psychographic non-metric variables Lifestyle, personality, values, yuppies, socially concerned, traditionalist and career makers skillful, efficient, trendy, basic, and social status people
Demographic Segmentation Mainstream Segment Age, family, income, education, religion, gender, race, nationality, generation, and social class
Geographic Segmentation Regions, counties, states, nations, neighborhoods, or cities.

Note. The above template shows different market segments and categories of customer traits. Source: (Haque, Khatibi, Raquib, & Al Mahmud, 2007).

The study of literature displays that mobile services are nearly homogenous among all mobile manufacturers, with the exception that some of them are emphasizing on how they can divide mobile users into respective cellular services and applications such as mobile TV, value added service and mobile navigation service. The mobile corporations show similarity in segmenting the market, although similar mobile service and location of mobile marketplace exist. The literature work of numerous researchers uses three dimensions of market segmentation proposed by Kotler (2011).

Most scholars chose behavioral segmentation as a cornerstone measures, as it contains segments that are identifiable as mainstream segments. Further, another reason they select behavioral dimension as a mainstream segmentation method is that behavioral data is much simpler to find and can be measured easily. The data also represents actual behavior of the customer. Marketers also believe that by using behavioral segmentation as a central tool, it is easier for them to understand wants and needs of mobile service users. Additionally, the necessary data in such case data can be collected through handset usage (Kotler, 2011).

Researchers such as Jansen (2007), Basole (2009), Aktas (2010), and Tao (2008) also gathered behavioral data through mobile usage for their research but Lin (2007) collected handset usage data from records containing call details collected from an operator. Whereas Basole and Rouse (2008), Bouwman, Lopez-Nicolas, and Molina-Castillo (2008), Haque et al. (2007) did not chose the actual usage of mobile services but gathered the data on consumer behavior based on their intention to use or obtain benefits on particular mobile services. Moreover, Haque et al., (2007 argue that marketers’ prime reason to consider behavioral segmentation as a mainstream segment is that users can be segmented into groups based on their attitude, inclination, and response to a product. They also support those variables in the group such as occasions; user status, loyalty, usage rate, and inclination to use latest services are the compelling starting points of a mainstream segment (Haque et al., 2007).

Besides behavioral segmentation, many corporates choose to use demographic dimensions as a main segment. Although demographic division may not be beneficial in segmentation, demographic characteristics can be studied to understand the needs of a given market, including the evaluation of target profile of consumers, measurement of the market potential and size with proper marketing techniques to approach them. The variables which are used by companies for demographic segmentation in Table 1 are gender, age, level of income and education. Gender and age of users are the easiest factors that can be accessed by marketers while the level of income and education need additional efforts for using their personal information during interview or data mining process. The demographic characteristics can be relatively easily measured and collected from mobile users as it emerges on the personal information (Basole & Rouse, 2008).

Psychological variables include niche segments and are not as popular as behavioral and demographic segmentation methods because psychographic characteristics of a user are difficult to measure. These variables cannot be distinguished or observed easily. Companies often use a predefined set of personality, social status, and lifestyle characteristics to create a market for this niche segment. The classification of diverse niche groups into homogenous ones is carried on the basis of their activities, for example, marketers use personality as the distinctive element of an individual user in psychographic segmentation for creating a niche market. During such a process, users of similar personality, with similar needs, are unified into one segment (Basole, 2009).

Features of New Cell Phone Attractive to the Segment of High-Profile Users

Behavioral segmentation usually encompasses corporate executives, high-profile personalities, famous celebrities, and industrialists who use a cell phone to increase productivity at work. These users depict similar needs and can be classified into one common segment. Usually, they use a mobile phone for data transmission and other business-related activities (Aktas, 2010). In most cases, businesses sponsor handsets; thus, the price is not a consideration but should incorporate all latest features such as 1. It should function as mini-computers, which can process and store information. 2. It can include advanced capabilities, whether it is for information gathering, business application, communication, and entertainment. 3. The physical shape should include modern design targeting hi-tech young users with bigger size of a screen, new touchscreen capabilities, integrated keyboard or designed with larger keypad, data storage, SOS button, volume set and much more. 4. The technological blending i.e. (GPS and mobile data internet) and enhanced capacity of mobile data, a cell phone can offer advanced functions such as social networking with instant messaging, information collection, Twitter, Facebook, entertainment applications including gaming and multimedia, and much more. 5. It should also include additional value-added service, for example location based service offering customized information to the consumer depending on their preferences and location (Haque et al., 2007).

Conclusion

An ever-increasing competition in the marketplace encourages mobile corporations to adopt those strategies which differ from their competitors, such as product differentiated marketing and individual marketing. Therefore, the process of market segmentation has become essential for implementing these strategies. Segmentation helps businesses focus their business activities by deciding a potential target market for their goods and services. Marketers segment the market by using four dimensions such as demographic, geographic, behavioral and psychographic. The choice of dimension highly depends on the needs and wants of a particular segment, as well as the decision of the company in selecting appropriate dimension that can produce better results for a target segment. Furthermore, marketers acknowledge that combination of two or more segmentation methods produces a well-defined target group, which demonstrates the actual preferences and behavior in buying products and services. In mobile phone industry, the demographic variable is usually combined with the behavioral one to profile the market segment. Marketing specialists have recognized the importance of lifestyle variable because it helps in predicting the consumer behavior and segmenting the market. Hence, the paper concludes that combination of demographic, psychographic and behavioral variables will provide better insight of mobile users in choosing a mobile phone and services.

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